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Conclusions for Economic Policy and Empirical Macroeconomics

  • Sebastian Hauptmeister
  • Friedrich Heinemann
  • Marcus Kappler
  • Margit Kraus
  • Andreas Schrimpf
  • Hans-Michae Trautwein
  • Qingwei Wang
Chapter
Part of the ZEW Economic Studies book series (ZEW, volume 42)

A central insight of the analyses in this study is that the potential output of an economy is neither theoretically unambiguously defined nor is it empirically identifiable in an uncontroversial manner. Indeed, basic static definitions such as the first definition introduced by Arthur Okun in 1962 (“the amount of output an economy can produce as it approaches full employment and full capacity utilization without raising inflationary pressure”, see section 2.2) suggest a fair degree of conceptual clearness and empirical accessibility. However, the dynamic perspective, in particular, highlights the problems: Potential output on the one hand and employment, capacity and inflationary dynamics on the other hand are mutually interdependent. Furthermore, this interdependency is influenced by changing institutional environments, monetary and fiscal decisions and aggregate demand and supply shocks. Consequently, the potential output of an economy is a variable that . for theoretical reasons . cannot be fully explained nor completely projected into the future as a function of current observed data.

Keywords

Business Cycle Potential Output Yield Curve Real Interest Rate German Reunification 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Physica-Verlag Heidelberg 2009

Authors and Affiliations

  • Sebastian Hauptmeister
    • 1
  • Friedrich Heinemann
    • 1
  • Marcus Kappler
    • 1
  • Margit Kraus
    • 1
  • Andreas Schrimpf
    • 1
  • Hans-Michae Trautwein
    • 1
  • Qingwei Wang
    • 1
  1. 1.Centre for European Economic Research(ZEW)Germany

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